Despite a 35% drop in Tesla Inc. (NASDAQ: TSLA | TSLA Price Prediction) stock this year, the company’s market cap is $517 billion. Ford Motor Co. (NYSE: F), which recently announced earnings that topped most Wall Street expectations, has a market cap of $51 billion. Tesla’s earnings were a huge disappointment. They were also a sign that its sales are in trouble in the United States and China, the world’s largest car market. Why the difference in valuation? Probably because some investors are willing to see Tesla as a software company and value it based on that assumption.
Ford is not a software company. So, that part of the debate about Tesla and Ford is off the table. Ford loses tens of thousands of dollars on its electric vehicles (EVs). It has provided no evidence that its vehicles have sophisticated software-based self-driving systems. And it sells only a tiny number of EVs.
Tesla does have a severe problem, even if it becomes the clear leader in software-driven self-driving cars. Its automotive revenue dropped 13% in the most recently reported quarter to $17.4 billion. Adjusted EBITDA, which it uses as a net income proxy, declined 21% to $3.4 billion. Management has yet to suggest a near-term solution. (Here is how much money Tesla makes every minute.)
CEO Elon Musk announced that Tesla will release an inexpensive EV next year, meaning one priced below $30,000. Price is one reason EV sales have slowed.
Tesla has highly sophisticated self-driving systems called Full Self-Driving. However, Tesla said that drivers still need to watch the road and be able to override the system. In other words, it is not self-driving. This situation may change, at least in part. In August. Tesla will release its “robotaxi,” which presumably will have even more self-driving capacity.
Many observers believe that Tesla will eventually have a totally self-driving capacity. It is in a race to get there first against other car companies and software operations like Alphabet’s Waymo. If Tesla were the first to market with an industry-leading product, it may have justified the argument that it is a software company, not just an auto manufacturer.
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